What a month it was for apartment building investment loan rates. The week we were all wondering How is Columbus Day Still a Thing? The 10yr rate we track fell to a low of 4.139% with the spread between it and the 10yr Treasury (T10) breaking below 2% to 1.929 (See below for details on both). I have to hand it to the ULI, they’re good. They had just said:
The apartment building investment loan rate we track was down to the high 4.5s the last couple weeks of August and clocked in today at 4.603%. The spread between it and the 10 year Treasury has been trending above the 120 day average for five weeks and I’ll have more on that below. The ULI <60LTV rate has been noisy and almost looks like it’s fighting to continue lower:
The apartment loan rate we track popped up into the 4.70s today after spending the last three weeks in the 4.60s. Today’s 4.71% rate is about the same as it was a year ago, just before the taper tantrum hit. Monday quotes on the 10 year Treasury have climbed two weeks in a row now but remain below most recent highs of March, clocking in at 2.62 today. The downward march of the spread has flattened recently in the 2.0 – 2.15 range, including today’s number at 2.14. The ULI <60%LTV rate still looks like someone bouncing a ball down the stairs but their data is lagged a week so we’ll have to check back on Friday to see if that rate is going to tick up as well.
The apartment building investment loan rate we track continued to trend downward as both the 10yr Treasury (T10) and the spread between the two came in during April. Today’s new rate on the loan is 4.733%, a 212 basis point spread over the T10 which was in the 2.61% area today. The six month moving average spread continues to fall suggesting that lenders are more confident and/or aggressive but the spread itself is above the March 17 low of 209bp.
This month we add a new rate which the ULI (Urban Land Institute) reports on from the Trepp survey. According to the ULI the Trepp rate is what large institutional borrowers could expect to pay on a 10 year fixed rate, less than 60% LTV loan for a “crème de la crème” core apartment property located in a gateway market. We track this rate as a barometer of what the largest lenders are offering their best customers on the most secure loans for any advanced warning about future rate and spread changes. See the ULI<60LTV Rate on the chart below (in gold). Note that the spread we chart is between 10yr loan we track (in orange) and the T10 (in blue):
The apartment investment loan we tract (see below for details) clocked in at 4.861% this week making it the 10th week in a row below 5%. Meanwhile the spread between it and the benchmark 10 year Treasury (T10) held in the 210 -220 basis point range over the last six weeks. The T10 itself had been in the 2.7% range over the last month but dipped to 2.65% this week:
After spending just one week above its six month moving average the spread between the apartment investment loan rate we track and the 10 year Treasury (T10) fell to 2.143 with the apartment loan rate at a nine month low of 4.743%. Meanwhile the T10 bounced up to 2.8%, climbing 20bp in the past week:
Over the last month the apartment loan rate we track eased slightly from 5.17% to just under 5 at 4.959% as the 10 year Treasury continued to fall causing the spread to rise above its 6 month average for the first time since July of last year but remains tighter than a year ago:
Apartment building investment loans in 2014, thoughts and predictions on what’s in store from lenders large and small and the organizations who represent them:
Greystone via MultiHousingNews: We do think there will be more capital available,” says Bob Barolak, co-COO at Greystone. Lenders will become even more eager to make loans in the multifamily space, he says, because of greater confidence in the economy and markets.
Another major reason for an expected bump in capital available in the next 12 months is that CMBS financing has come back into the multifamily sector—from a volume of practically zero in 2012. They will continue to increase market share significantly in 2014.” Currently, CMBS multifamily financings are carrying interest rates of about 5.10 to 5.20 percent, or about 10 to 15 basis points lower than rates in Fannie Mae transactions, according to Barolak.
Maximum LTVs on CMBS loans—up to 75 percent on 10-year terms for multifamily properties—have also become competitive with those of Fannie and Freddie loans. Moreover, CMBS lenders can become “extremely aggressive” for deals they want to acquire to round up a securitization pool, Barolak says. In such instances, “they can dramatically lower the interest rate significantly below what Fannie and Freddie will offer.”
Happy New Year everyone. Loan rates from the lender we track have risen over the last few weeks as the ten year Treasury (T10) has climbed about 25 basis points (bp) and the spread between the two has widened about 10 basis points. At 221bp though it remains tighter than a year ago when it ranged in the 270bp area.
The Urban Land Institute/PriceWaterhouseCoopers annual report on Emerging Trends for Real Estate 2014 was released last week and apartment building investors and commercial real estate pros have some good things to look forward to next year. Note that this post refers to the Americas version of the report with separate sections on Canadian and Latin American markets but they also publish Asia-Pacific and European editions as well. This is the 35th edition of the report is it’s based on individual interviews or surveys from more than 1,000 investors, fund managers, developers, property companies, lenders, brokers, advisers, and consultants.
Here are the 5 key trends we should all be aware of with my comments:
Survey participants continue to rank private direct real estate investment as having the best investment prospects. Pretty expected from this group but the National Council of Real Estate Investment Fiduciaries (NCREIF) recently released its property performance index for the third quarter of 2013 and on a trailing 12-month basis, the index’s return was 11.0 percent, split about 50/50 between income and appreciation. A pretty nice return compared to fixed income rates and a much safer looking bet than buying equities at their all time highs.
Dependence on cap rate compression to drive value is being replaced by an emphasis on asset management. Especially in the 24 hour gateway markets apartment building cap rates are about as low as they can get (well until you look at Vancouver BC) so property performance has to come from actually making the property perform. You also have the problem of what to do with your proceeds if you do sell, as you would be reinvesting right back into the same cap rate market that you sold in… unless you changed to a higher cap rate sector, suburban strip centers anyone?
Opportunities to develop property are finally appearing in sectors other than multifamily. CBRE Econometrics had a piece out last week showing that large (> 350k sf) warehouse properties are being snapped up as fast as they’re being built. Maybe developers who moved over to doing apartments the last few years will move back to their home sectors and ease off on the new supply of multifamily units.
Value-added investment ranked highest in terms of investment strategy; distressed properties and distressed debt ranked last. We were licking our chops a few years ago waiting for RTC 2.0 fire sales to begin and while we were able take down some bank owned inventory, the anticipated tsunami of defaults on commercial loans never materialized. At this point most everything has been extended and pretended into performing status or sold off and so it’s back to making money the old fashion way: Finding and/or creating value.
Both equity investors and lenders are widening their search for business to include secondary markets and niche property types. This will be a double edged sword for investors who are focused on those secondary and tertiary markets as debt financing will be more available but there will also be more competition from sophisticated outsiders with deep pockets. The key will be to make them your buyers so dig in, find the right properties and tie them up quickly.